A comment on yesterday’s blog, from Steve Snyder, quotes a piece entitled “Revisiting Conspicuous Consumption” that apparently speaks to a consumer trend toward hand-built vs. mass-produced products. This sort of return to “honest craftsmanship” is a recurring theme in American history, and in many respects it’s overdue to appear again. I don’t know how it might impact the wine behemoths who control the vast majority of wine sales, but I am pretty sure it would be helpful to the little wineries that are making under 3000 cases annually – in Washington, that’s all but the top 30 or so labels out of more than 650.

An e-mail from Brett and Denise Isenhower also showed up yesterday speaking to this very topic. Isenhower Cellars has been making wines in Walla Walla for a decade, and had been ramping up production until this recession hit. Now the owners say they will scale production back to a Mom and Pop-size operation. They are leaving their distributors, and write that from now on “the only places to taste and buy our wines are the Woodinville tasting room, the Walla Walla winery, and isenhowercellars.com.”

They go on to offer some interesting details. “Why the change from distributing 1/2 our wines to restaurants, wine shops, and high end grocery stores to only selling wine direct to you? According to the New York Times, sales of wines costing more than $25 fell by 30% in 2009. We felt the hit as our primary markets of Seattle, Orlando, Portland, Los Angeles and Chicago struggled to sell our ultra-premium wines. My former Seattle distributor told me last summer ‘I can only sell cheap wines’.

“Banks have greatly tightened their lending requirements to wineries. Most wineries require a line of credit for operations. Well there is no more "float" and banks felt like they were sinking as wineries saw their sales fall in 2008 and 2009. According to a large Northwest bank, 85% of their wineries lost money in 2009.

“Selling wines to distributors who then sell it to shops and restaurants is a hard business. The winery profit margins are really lousy (except the stratospheric priced wines). For a $25 bottle of wine on the shelf in Seattle or Portland, the winery would get around $11.50 to $12 from the distributor. For that same priced wine in Boston or New York, the winery would get $9. I saw a wine I know was sold to the distributor for $6.50 a bottle cost $18 on a popular wine web site. To make this work a winery has to make A LOT of wine. Increase production to minimize fixed costs.

“I figure a boutique winery needs to make at least 7,000 cases to make this sales channel profitable. Of course the winemaker has to constantly travel around the country selling wine because the distributor has at least 1000 different wines they represent and you are just another product to sell.

“My choice in early 2009 was to try to grow up to 7,000 cases and travel all over the country or return to being be a mom and pop winery. With three young girls that I want to help raise and without the bank backing us up (I do not blame the bank; they have their own headaches they have to deal with these days) I decided to keep Isenhower Cellars a Mom and Pop winery. We will make the amount of wine we can sell directly to consumers and cut the umbilical cord of distribution and the bank operating line of credit.”

The winery website adds that “a complete focus on quality limits production to 2,000 cases of wine and the success of our wine club and second tasting room leaves no extra Isenhower wines available for sale outside of our winery’s embrace.”

PG: I think that this makes all kinds of sense, and with a tasting room in a popular tourist destination (Walla Walla), an established customer base, and a track record for clever blends and fair prices, I am confident that Isenhower (and many other boutiques like them) will do just fine with this type of direct sales, limited production approach. Lowered expectations? Maybe so. But it's also more human-scale, more time-and-family friendly, and above all, more hand-built.

18 comments:

Thanks for quoting me yesterday... We sell 90% of our wines through our tasting room. We simply don't have time for wholesale distribution since we make around 1200 cases a year. I think this is the wave of the future for small wineries. The days of distributors caring about little wineries is over. We are following the same plan as Isenhower and think this is the way to the future for many small family run wineries.

Just another reason to buy local. I love wines from around the world, but there are plenty of great wines made in WA and OR to spend my money on. Helps support your neighbor, and the treehugger in me likes it too.

Kudos to the folks at Isenhower for describing the situation and the alternatives they contemplated in such detail (and to you for posting it here). I believe it paints a vivid picture of the thoughts going through many people's heads in the winery business in Washington. As a side note, I would add that Isenhower's wines are well priced (most just north of or under $25) in today's economy and considerably less expensive than many wines in Washington. It makes one wonder about the thoughts going through people's heads with wines $35 and up.

PG – I was simply asking a question based on what you said. Your statement, “lowered expectations”, struck me as negative and possibly presumptuous. All the reasons the Isenhower’s gave for changing their game plan sounded reasonable and a step in the right direction for them, so I couldn’t understand why you used what I consider a less than supportive statement.

Paul,I think this Isenhower post provides an answer to your question from the other day "are Washington wines too expensive?" and particularly addresses why small production Washington wines are so hard to find outside the Northwest.The sobering math of a thousand cases at an average price of $25/bottle totaling $300,000 gross, in light of the number of employees, cost of materials, professional services fees, taxes, and the capital deployed should make it clear that no, from this perspective at least, Washington wines aren't too expensive.This begs the second half of the question of whether there's enough demand for the burgeoning ranks of micro-producers who really must sell at $25 or more? Like Seth Godin and Steve Snyder, I believe that there is a long-term trend toward higher quality in our consuming habits. Take a stroll down the aisles (beer, chocolate, coffee, etc.) at your decent grocery store and they will look nothing like they did 15 years ago. The real challenge is helping (on a limited marketing budget) the consumer recognize that a particular $25 bottle delivers an experience that merits the price differential compared to the mass-market brands.

Todd, a couple of things affect the basic math as you describe it. Call them market forces or business realities, whatever. Yes, it may be true (doing the math) that at $25/bottle these wines are not expensive in view of the cost of production. But in a free market, no one but the business owner cares about that. Why did all kinds of manufacturing move to China? Because they did it cheaper. Why are so many posts on this blog pointing to $10 Cotes du Rhones and Argentine malbecs as genuine values. Because they are there in the grocery store, competing with the $25 wines from Washington.

Paul--I reread your lowered expectation line, I didn't see it as negative, I think you needed to say more realistic expectations. As in cooking less is best, the small winery business ia allot like the small restaurant business, there's a clash when reality meets fantasy-Tiny

Good for Isenhower Cellars for looking at their business through the prism of the new realities.

However, the story that the consumer needs to be told is the flagrant use of bulk wine in many of the best-loved brands' portfolios.

Shouldn't the consumer be told that the $20-$25 red or $13-$18 white wine that their beloved brand is selling them, may have come out of a tank at one of the state's big producers. These are wines that were sourced, crushed, fermented and aged by the volume producers, then sold in bulk to be branded as an extension of another brand's line. Sometimes, the receiving winery blends the bulk wine with their own declassified juice, in other cases, the tanker just rolls up to the winery in advance of the mobile bottling truck.

While these same consumers would eschew the wines from the $10 and under producers on the basis that those brands are not for them, they are willing to pay double or more for wine they think is the product of a recognized premium brand's label.

Truth in labeling is one thing, Anon, but brand building is another. Does any endorsement by a celebrity ensure a better product? Generally not. Sports celebrities are plastered all over cereal boxes, but the cereal is generally crap. A basketball shoe by Nike may cost a lot more than it's worth because it's "collectible." Same with wines. Brand extension is perfectly valid, and I see no reason that wineries should be required to explain how a particular wine was made, as long as they don't lie about it.

Paul:When a celebrity endorses Wheaties, the consumer still knows that General Mills made the cereal. Nike sneakers are still made by Nike, no matter who endorses them. In both cases you give, the consumer knows who the producer is. However, in buying bulk, the wine is being made by another company and labeled as the product of another.

I am surprised to hear you support wines as a mere commodity to be marketed and branded by image. When a winery buys bulk wine and slaps on a back label that states 'Produced, Vinted or Cellared and Bottled by PremiumBrandName in BigWineDestination,” I believe that most consumers don't know enough about winemaking process to ask the right questions.

And yes, consumers believe what they see and read on the brand’s website about the integrity of the winemaker’s passion “to handcraft the finest wines using the finest grapes” especially when it is replete with photos of vines, kids and dogs.

I take your point, but I am not in favor of still more regulations, label requirements, etc. (such as nutritional content, fining materials, etc.) directed at wineries. Enough is enough. The consumer either likes the wine or doesn't. He/She generally cares little about whether the winery made it or didn't. These are not high end, expensive wines we are talking about here. Commodity wines exist and have a place in the market. Why should I not support them when they are well made and offer fair value? A back label that says "produced, or vinted" does mean, I believe, that the wine was made by the winery. If it reads bottled or cellared, that's different. If a consumer really cares about such matters, it is there to be read. As for websites talking about kids and dogs, c'mon, everybody has kids and dogs. That's just selling the sizzle with the steak.

I think the thing that needs to be clarified in the discussion between PG and Anonymous is, are you talking about commodity wines or not? Anon mentioned $25 reds and $18 whites and in my book those aren’t commodity wine prices for the PNW.

Hands down, you'll enjoy a wine more if you had a personal experience with the winemaker at the winery. A Ste. Michell Indian Wells Merlot may actually be a better wine, but when was the last time you showed up at the tasting room and had Bob Bertheau pouring you a glass while taking out the garbage...

All wines are over-priced in America. We don't drink as a life-style. If so my 9-year old daughter wouldn't be out of place choosing between a Cayuse Syrah and some SHIRAZ from down under.

Face it, you're buying an experience. And every time you open that JM Sauv Blanc this summer, you're picturing hanging out by the trout pond, not the aisle where there's a great Roll-Back price next to the Yellow Tail.

Give it up, don't be afraid to luxuriate in expendable income. You wouldn't be here if you couldn't occasionally afford a Flying Pig. Personally, everytime I have some Franklins to burn, I'm going to wallow in my own hedonistic good fortune.

There's plenty of drinkable wine out there for under $5. You just have to hang out with me at Grocery Outlet...and drink a Los Angeles appelation wine with an open mind.

No where in the Bill of Rights does it say that your small winery entitles you to a decent standard of living. Good call Isenhower on reviewing your business, but for so many New World producers quit whining and run your business intelligently, cost effectively, and creatively. And as for the "New Order" of distributors not being interested in small wineries, the country is hungry for wines of interest, individuality, and character. The big houses will never make these wines, and small wineries that make $40 wines that taste exactly like their neighbors aren't making them either.